Sonoma Valley Bank executives settle with FDIC over bank’s collapse

Three officers at the failed Sonoma Valley Bank have settled a lawsuit from the Federal Deposit Insurance Corporation for about $5.4 million.

The agreement reached earlier this month falls short of the $12 million originally sought after the bank’s collapse in 2010 following a series of risky real estate loans.

It calls for payments from the bank’s former president and chief executive officer, Sean Cutting, as well as former CEO and director Mel Switzer and vice president and chief loan officer Brian Melland.

The money, which will come from insurance policies, will go into the federal fund insuring nationwide deposits and will not be used to recoup the losses of more than 1,000 shareholders who invested in the bank.

“The sad thing is I don’t see how they will get any money back,” said Ralph Hutchinson, a former federal banking regulator and consultant who is familiar with the case.

A limited number of shareholders took part in a $2 million settlement in 2013.

Neither the FDIC nor the bank officers’ attorneys would comment publicly on the settlement Friday. The men admitted no wrongdoing under the agreement.

It was approved April 11 by U.S. District Judge Richard Seeborg and published Thursday on the FDIC website.

Cutting and Melland face separate criminal charges for their roles in authorizing $55 million in loans to the late Marin County developer Bijan Madjlessi, who died two years ago in a car crash. They await trial on federal fraud charges along with a third defendant, Sonoma County attorney David Lonich. He declined to comment Friday.

A trial date is not set.

The bank was closed six years ago after a series of commercial real estate loans resulted in millions of dollars in losses. Critics blamed bank officers for their dealings with Madjlessi, who built projects in Santa Rosa and Petaluma and later defaulted on a majority of the notes.

By 2011, the bank and its loans to Madjlessi were the focus of a federal fraud investigation. A 29-count indictment charged the men with conspiracy, bank and wire fraud, money laundering, obstruction of justice and other violations.

In a separate case, Madjlessi was accused of insurance fraud in connection with two separate insurance claims he made after his Reno condo-conversion project was damaged in a 2008 ?arson fire.

Madjlessi was killed in May 2014 when his Mercedes sedan plunged off the Shoreline Highway near Muir Beach. The crash was ruled an accident.

After his death, creditors were reportedly seeking to collect $22 million in unpaid bills and placed liens on his 7,000-square-foot Mill Valley home.

You can reach Staff Writer Paul Payne at 568-5312 or paul.payne@pressdemocrat.com. On Twitter?@ppayne.